93: What the U.S. Tariff Chaos Means for Canadians with BCREA Chief Economist Brendon Ogmundson

Taylor Atkinson: Welcome back to the Colonial Real Estate Podcast. I'm your mortgage broker host, Taylor Atkinson,

Matt Glen: and I'm your real estate agent host, Matt Glen. What's happening, Taylor?

Taylor Atkinson: Well, better question. What's happening, Matt?

Matt Glen: Yeah. Things have been crazy. You know, adjusting from one child to two Holy shit. There's a lot. It's a ton of work, but it has been awesome.
Yeah. Congratulations. Yeah. Thank you. Our daughter dove born a couple of weeks ago.
It's been awesome. Yeah. Our son loves her. No jealousy situation. It's obviously been a great transition.
Personality wise, it's just workload wise, it's been crazy. Also, I've just been super busy at work, which has been perfect time in there, but

Taylor Atkinson: Yeah.

Matt Glen: It's been interesting for sure.

Taylor Atkinson: I mean, yeah, the whole parenting life journey is such a an interesting one, but you guys seem to be thriving in it. Itself. Yeah.

Matt Glen: It's going pretty well. I'm still not planning one bit. It's going well.

Taylor Atkinson: Yeah. Yeah. Cool. Well, yeah, like you. I mean, yeah, we did a bit of a family vacation and it was awesome.
And, you know, you also have those core memories with the kids and you know, it's funny you go through this mindset, like, not to relate parenting to real estate, but I'm going to it's so cyclical. Right? Like, every few weeks or months or whatever it is, you're like, well, we just gotta get over this next, like, milestone hurdle, and then life will be a bit easier. And I find this the same with real estate and ballsy and media and everything. There'll be something that we're like, we just need to get over this hump.
Right? We just need to get over COVID. We just need to get over inflation. And now it's like, we just need to get through this tariff talk. We brought on Brendan Agvenson to dissect it.

Matt Glen: Talk commodity right now. Brent?

Taylor Atkinson: Yeah. The guy's booked, like, as many shows that he does in a year and two months. Yeah. But I feel like he's the only resource we can lean on to actually talk about this stuff.

Matt Glen: Well, he's definitely the best resource for real state in BC. To get an idea of what to expect, not that anyone really knows what to expect.

Taylor Atkinson: I mean, it was kind of reassuring to know that he's also pulling his arrow because everyone else I mean, at least us, how do you advise clients? What do you think is gonna happen? Nobody really knows? So he's built a lot of different scenarios. But, I guess, for me, and this is just my own I mean, you can comment what you heard from the show, but we recorded this February twenty seventh.
It's gonna be released on March fourth. That's technically one the final, like, tariff announcement was supposed to be put in place, but that could change. But what I got out of the conversation was the likelihood of both countries coming out with the tariff policy of twenty five percent is most likely gonna happen. That's gonna affect our GDP negatively and cause inflation to go up. Slightly to be a sustained level.
If that happens, variable interest rate or banking on an overnight rate is gonna drop. Brandon said, you know, potentially a hundred basis points, which is a one percent drop on prime. Which would bring, like, the prime rate down to four point two, and then you get a discount on that. So likely, variable rates could be in that, you know, four to sub four percent for a short term, and then fixed rates would likely go up slightly. So we're probably gonna see variable down in that four percent range and fixed up in the five percent range.
But that's just what I took out of the conversation briefly. What about you?

Matt Glen: I guess what I took mostly just the amount of uncertainties we don't really know because he's talking about, like, if this happens, if this happens, like, if the US imposed a charge, we retaliate. Like, they have kind of different consequences and yeah. It's a tough one. Too bad that, like, our economy is gonna take a hit and rates could go up. Same time, we're, like, slightly up.
Right? Like, it's just like a tough one. Like, normally, the economy starts going down, you just lower rates and kinda helps a little, but like

Taylor Atkinson: yeah. And I think that's you know, if variable rates come down, it's not like a relief of, oh, great, you know? Because Yeah. That means inflation's going up again, which inflation sucks. We've been through that.
Yeah. So it doesn't look great for our economy. And then in terms of, like, activity level in real estate, I know you and I have been smoking busy right now, but you know, I think this could slow things down a little bit just because of that volatility. Like, the uncertainty kills transactions. I don't find rates affected as much.
It's like people don't wanna make a decision that they're locked into a house for ten years, if we have no idea what's gonna happen,

Matt Glen: exactly next week is definitely right. That's exactly right. Yeah. Yeah. The one thing there is right now is uncertainty.
So Yeah.

Taylor Atkinson: Yeah. That's the one thing we're certain about.

Matt Glen: Alright. Well, yeah. Enjoy the show, guys. Alright. In this episode, like every episode sponsored by Century twenty one, Assurance Realty, Best Brokerage in the Okanagan, and actually the Interior BC.
We're growing geographically. Agent wise so if you're an agent looking for a change to our growing brokerage, give us a call. Your buyer or seller looking for an agent, give us a call, and enjoy the show. Brendan does not disappoint.

Taylor Atkinson: Alright. Returning to the show, Brendan Agneson. Thank you so much for joining us again, man. How are you?

Matt Glen: Thanks a lot for coming.

Brendon Ogmundson: Good. Good. Good to be here.

Taylor Atkinson: Well, I mean, there's not a lot going on since we last spoke, but Yeah. It seems like you're never gonna be sure to work with the way things are going. Hey, like Yeah.

Brendon Ogmundson: Yeah. I've got I think between January first and June. I have got I think it's, like, forty forty or forty five presentations, podcasts, whether it's, you know, first in virtual in terms of mix. I usually do about fifty to sixty in a year, and I have basically that already

Matt Glen: for the

Brendon Ogmundson: first half of the year. So, yeah, it's it's a lot. You know, obviously, people are really interested to hear about tariffs. We all have been talking about every day. Past couple months.

Matt Glen: And it's crazy because, like, it's not even like you're gonna have the same topic for all those things. Like, so much things happen from day to day that you actually change up your presentation every day.

Brendon Ogmundson: The amount of updating analysis and slides that, like, not just than me, but the Bank of Canada has been doing it. Other economists say no. It's just this constant, like, updating and updating and updating. As new information comes in, you you have more refined kind of details about about the tariffs and when they might happen and what magnitude and everything else. So, like, we've written a whole piece called choose your own misadventure about tariffs that we'd started in, I think, in, like, December, so it was really fun, like, pre Christmas period running in, like, macroeconomic simulations.
The way everyone wants to spend their holiday season. And by the time we put it out, like, because we had scenarios for, like, ten percent tariffs, like, that's over what's the point of even including ten percent in those simulations at this point? So that was, like, we put it out and it was basically already kinda obsolete by the time it was out and I've had to update that that since for presentations and Yeah. It's a lot.

Taylor Atkinson: Yeah. I mean, even for this show, right, like, we're recording this February twenty seventh. We're gonna do a quick turnaround. It'll be out March fourth. A lot could change between then, but tariffs were supposed to be announced March fourth, so we won't hold you to anything.
But yeah.

Brendon Ogmundson: Yeah. We were kind of, I guess, on schedule for March fourth after that, like, thirty day reprieve where I I don't know if there's any negotiating going on in the background or what. And then yesterday, I think Trump had said they would be April second, but then it seemed like maybe he was confused about other tariffs. And then from if his advisers corrected, it was still March fourth. So Who knows?
This is not the best crew in terms of, like, rational thinking and preplatting. No. No. No. No.
No. No.

Taylor Atkinson: No. Can you kind of summarize in a few minutes, break down the timeline of what's happened in the last few months. And, I mean, the whole show talk to us like idiots because we are, like Matt and I don't have a clue what's going on. Much like probably most people, not to assault our listeners, but, like, it's a lot to digest.

Brendon Ogmundson: Every economist is, like, tariffs are not a thing that most economists have had to think about for a really long time because as long as,

Matt Glen: like, retrain for centuries.

Brendon Ogmundson: Yeah. And, like so everyone's been scramble into textbooks, like, hey, how does this work again? And Yeah. So don't feel bad if you're like, what's going on with tariffs?

Taylor Atkinson: It's Yeah.

Brendon Ogmundson: It's very arcane and we'll get through it together.

Taylor Atkinson: K.

Matt Glen: Let's just start with the simplest. Where were the predictions before tariffs? Started to become take over our lives.

Brendon Ogmundson: So if you talk to me in, like, pre election, I guess, pre reelection. Yep. I would have been hoping to at least that we would have a convo Harris administration. We would have to talk about tariffs at all. That scenario, we would I think be looking at a pretty nice recovery this year.
Everyone, you know, if you looked at the Bank of Kansas forecast, the IMF forecast within the economy, they were expecting growth to pick up to, like, you know, two two and a half percent. So a decent kind of year for growth. And then for the housing market, I was expecting things to get kinda back to normal. After our two really weak years of activity Yep. Acting sales come back to, like, around their ten year average, maybe a bit above.
In the pretty well supplied market in terms of listings, prices would be pretty flat. It'd be pretty calm year. Instead, we're kinda scrambling to talk about

Matt Glen: I was feeling good there for a second.

Brendon Ogmundson: Yeah. About tariffs. So, like, it kinda kicked off post election when Trump put out a whatever you call it, fruit. So stupid. About how he was gonna put a twenty five percent tariff on Canada and Mexico to ten percent tariff on on China.
And then that kinda said to everybody scrambling. Because before that, it was like, talk was like a ten percent tariff. And that's bad. That's not a tank the economy. That's kind of a different animal.
That caused a lot of concern very quickly for listeners too. Like, what is the tariff? Think it was probably a good place to start. Yeah. It's just a tax on imports.
So it's, in this case, the US, we're putting a twenty five percent tax on all Canadian goods exports to the United States. So whether that's lumber or auto powers steel or aluminum. If a US business who needs Canadian steel as part of its manufacturing process, they're paying twenty five percent on that purchase at the border or be invoiced for, essentially. At the start, Trump we were talking a lot about how foreign governments are we paying these tariffs. And then, I guess, someone probably pulled them aside and corrected them because he hasn't said that in a while about who actually pays tariffs.
Yeah. In the most recent Bank of Canada monetary policy report, these are really graphic about what happens with tariffs with economies like the US and Canada for really integrated supply chains. So how many times that tariff gets paid and then how much of it gets yes, through the prices. So if you're American auto parts manufacturer and you order steel from Canada, you pay the tariff, then you ship those auto parts to a car assembly plant in Windsor or something. Tariff gets paid again.
And then the finished product, the car gets sent back to the United States, tariff gets paid again, all those tariffs get baked into the eventual consumer price. All that ends up happening is that prices are rising and end up with inflation, because of tariffs erase revenue as well, but at the expense of a slower economy and higher inflection.

Taylor Atkinson: Part of their justification of this was, I guess, two things they said, like, they wanted to stop illegal immigration and drugs but they also wanted to be like America first and, you know, support their economy that way. Is that still their kind of stance?

Brendon Ogmundson: Yeah. So the two main proponents I think of tariffs besides Trump in his administration are his Treasury Secretary Scott Bassett, who people assume as an adult because he worked with George Soros as hedge fund and is generally well regarded in finance. He's like a serious person. I think he's absolutely setting a flame to that reputation with every speech he makes. And then Steven Myron, who's Trump's chief economic adviser, essentially.
Steven Myron wrote a paper all about how to use tariffs, sort of blaming global economic system, kind of biases the US dollar higher at the expense of the U. S. Manufacturing sector. So all of these sort of records that we've seen in the U. S.
Manufacturing sector, like, especially in the Midwest and United States, since China was allowed into the WTO, you know, what the consequences of that have been over the last four years Is that, you know, China is a super low cost producer? They can produce very very cheaply and sell cheap goods back into the United States? Do they take those dollars, recycle them into US treasuries, which pushes the US dollar up and keeps kind of Chinese economy more competitive than it would be otherwise. So China tends to manipulate its currency and they haven't really done anything serious in the way of, like, trying to rebalance their economy. Towards, like, more consumption.
So a healthier global economy would be a China that had a lot of, like, household consumption happening, a lot of domestic investment rather than just exporting cheap goods to the rest of the world. And kind of cause in these balances. So one thing that you kind of argue for is that US dollar should be lower, which would cause you help manufacturing the United States. But Trump has a strong dollar policy and they still want the US dollar to be the global reserve currency. So one thing you can do to try and punish countries like China is put a very large tariff on their imports to United States.
So it kind of forces them to reorient their economy with more consumption less states. That's sort of the theory. So you take that kind of nuanced theory and so that I find kind of inherent, but at least it's an economic argument and then filter that through, like, a particularly dim witted toddler's brain and you end up with what we have. Now, which is tariff good, credit surplus good, trade deficit bad. And instead of putting in a large tariff on a country like China where you could maybe see the argument, they put huge tariffs on Canada where they run a very small trade deficit with Canada or Mexico or now the EU.
So all of your allies and your largest trading partners. I think the only calculus that Trump does is he sees what the largest number is in terms of trade, and he wants to put a tax on the largest number so he can raise the most revenue. He's this weird idea about how the America was never richer than when they had really high tariffs. I don't know what that argument is. I'm not sure what he means by richer.
I think he means like government revenues, which is no one's idea of how you measure wealth of our country. But So it's really difficult as an economist. And there's no one of, like, coherent thought behind any of this. So it's really hard to figure out what they're thinking because it's so irrational. A long way of, like, why is this happening?
Opinion, they have a particular theory about trade and it's being kind of dumbed down to essentially like exports, good, imports bad. That's where we're at. So because of that, we might end up with a twenty five percent tariff on all Canadian imports to the US next week.

Matt Glen: That is crazy. So I heard him talk about that. So he basically said the golden age of American finances were eighteen seventy to nineteen fourteen, which is basically the time after the American Civil War to World War one. Like, I'm not, obviously, an economist or an historical economist at all. But, like, when I read that World War one was basically a massive wealth transfer from Europe because they spent all their money and they like, basically, it just hired USA to to fund World War one, and that's when they got rich.
It's almost like it's exactly the opposite of what actually happened. And then World War two, I feel like no country benefited more financially than the US and World War two. That just doesn't make any sense. To me?

Brendon Ogmundson: No. Obviously, none of it makes any sense. Some of it is like they need to raise revenue. They're currently running about a six percent budget deficit, six percent of GDP budget deficit, but they need to do something about. They won't raise taxes.
They certainly won't raise income taxes. This is a way of essentially introducing a consumption tax on American taxpayers, but not calling it that.

Taylor Atkinson: Good media spin, really.

Brendon Ogmundson: Yeah. And it's like they're raising taxes on American consumers and businesses without having to say they're and then pretending somehow that it's actually paid for by foreign governments, which you've seen now on the street interviews where they even like people will try to argue that it's actually foreign businesses or foreign governments, fan attacks, because they've just listened. They've strength the Kuwait, but you see less and less of that, and I think if people are starting to wake up to the idea that these tariffs are pretty disruptive.

Matt Glen: It is crazy when you think about, like, the president talking about fifty first state and stuff, then you see these madam free interviews. And these people who had literally no beef at all, love Canada last week are, like, talking like, yeah. Let's take him over. Fuck him. Right?
It's, like, what on Earth is happening? Just because there's one dude brain fart's shit. It's in sync. Yeah, without even getting into the

Brendon Ogmundson: the nonsense of all that, you know, in Canada or whatever. I mean, obviously, if any other president had said anything like this, they'd be fit for a straight jacket, but he has to play it by his own set of rules for level. And so can rant about that all day. But as far as, like, the impacts, I think we should talk about, yes, is what it means for the Canadian economy. And there, it really like, tariffs can affect an economy.
There's sort of two paths one path is if Canada didn't retaliate. So if we didn't put our own tariff on US imports into Canada, then the impacts are serious. They're just maybe less severe. There's debate about some of these things, but Obviously, our exports would take a pretty big hit. They're over twenty five percent more expensive now.
The US businesses might look for substitutes domestically. That means we're selling a lot less in the United States. The impacts on inflation without retaliation. This is where there's some debate. Without us retaliating.
The impact on growth would overwhelm everything else, and we would get much lower inflation. Bank of Canada would have to respond pretty aggressively in that scenario, and we'd get an exchange rate, depreciate. In our models to, like, sixty six cents. So if I'm brand new one, then still thinking about travel into the United States. That's not the path we're choosing.
We have chosen to retaliate with a twenty five percent tariff on about fifty percent of US imports into Canada. So there will be at least some inflationary response. So and this with retaliation scenario, you still take the same hit to GDP. But then the impact on inflation in the Bank of Canada is what really kinda matters matters. So and that branch is off again.
So under one scenario, you might have, like, a transitory shock to inflation. No one wants to talk about transitory inflation anymore after the pandemic. But you know, a one time increase in prices due to the tariffs on US imports that kinda goes away after about a year. Under that scenario, I think the Bank of Canada can act pretty aggressively to address the economy and the weakness in the economy. And if they would end up cutting rates by a hundred basis points, a hundred and twenty five basis points, whatever it is.
You gotta look at, like, the Bank of Canada's most recent projections. They started out very severe and have since still back. I think, you know, what started off as, like, three points of economic growth lower than would be otherwise. And now it's like a little bit lower than that in their most recent projections. So they have a thousand people working on this and everyone else is like a handful.
So go with their numbers in most cases. In the case where you have transitory inflation, I think the Bank of Canada can lower rates, you know, maybe lower to doing one and one and a half percent. They probably don't go all the way to the zero lower bound. The situation that we might end up with is like a low but persistent higher inflation. So in Tim Maxim's most recent speech.
He had some projections for the impact on inflation, because it's sort of, you know, current most likely proposal for tariffs and retaliation. And it shows, like, about a half a percent to, you know, point six percent increase in inflation over baseline, which is like two percent target. So they show inflation running at between like two point five and two point six for like three years. So like pretty persistently higher than target. Like, not much higher.
We're not not above three percent, but higher than target inflation for a really extended period of time. Obviously, they don't show what their monetary policy response would be. So I did some work to just sort of try and match that specific response in our models. It kinda tells you that they would probably not be able to lower rates at all under that scenario. If inflation's just running, two and a half, two point six percent.
Seems like they would not be able to cut rates very aggressively or maybe at all. And in that case, mortgage rates don't move very much either. Maybe even you have a little bit of a risk premium built in because the economy is a little shakier. See and end up with five year fixed rates going a little bit higher, then that seems to be their most likely scenario. We have a much weaker economy and a economy that's in their estimates, I think, very shallow recession to just zero growth for a two year period.
And where rates are kinda hovering around where they are now. So you get all that weakness and not necessarily a lot of firepower directed at pulling us out of that. And it's kinda taking great pains even to explain, you know, monetary policy can't fix everything in the economy, and this would be, like, kind of, a structural like, all of a sudden, our largest training partners trying to tread this a lot less. That's not really a job for monetary policy to fix. And they're trying to communicate that, I think, as well.
So Under that scenario, obviously, the housing market would be impacted if you've got certain parts of the economy, certain regions that are being more affected, sales are falling in our models. They fall back to basically the, like, the weakness we've seen in the past two years. So sales running pretty slow. Prices coming down. You know, inventory starting to build up.
Not an awesome scenario. It's like a doomsday kind of scenario, but it certainly would mean another year or two really slow sales. It starts to get strays can't come down.

Matt Glen: Is basing better off or worse off or kind of medium for the country? Or, like, how are we looking there?

Brendon Ogmundson: So BC exports about fifty percent of its goods to the United States, whereas the rest of Canada is about seventy five percent Ontario, I think it's around eighty percent because they have auto assembly kind of supply chain that goes back in Florida. Yeah. Alberta, I think, is closer to about ninety percent because they send so much oil. The only reason we run a very small trade surplus with the US is because they buy a lot of oil from us to refine in the Midwest and the Gulf Coast. You see less exposure, not zero.
It's still fifty percent. About a quarter of that is energy products, twenty two percent is oil and gas. I think four percent or five percent is electric power. That's probably pretty inelastic. Like, I think they'll just keep buying that.
They'll pay the ten percent tariff that is currently proposed on oil and gas exports. Products that are gonna be hard as hit are forestry, again, after they were already really severely impacted by the twenty eighteen, twenty percent tariff. I was reading some research from I think it's a Forrester Association in B. C. But I guess the tariff is also additive it doesn't replace.
There's currently a fourteen and a half percent tariff already in place on BC softwood lumber. And this twenty five percent is on top of that. So apparently, it would be a close to a forty percent tariff on softwood lumber. When the twenty percent tariff was put in place in twenty eighteen, lumber exports from BC fell by about thirty percent and sales and manufactured wood products fell about thirty percent and Forrester employment fell. You can imagine those types of impacts applied to, you know, the mineral sector and metals and all that kind of stuff.
We already have, you know, without the broad based tariffs being announced, they did already put a twenty five percent tariff on aluminum and steel imports. BC exports about a billion to a billion and a half dollars of aluminum products in the United States every year. Mostly from the smelter in Trinidad. So that community could be really impacted if that tariff causes some road disruptions to their operations. So, yeah, you can just imagine, like, all of those communities, largely in the north and, like, the northeast where our oil and gas comes from, and then, like, kind of the North Coast where, you know, hit a man in some of the forestry kind of communities of the interior and the island.
Those are the communities that would be hardest hit. The Chamber of Commerce in Canada put out a map showing, like, what big cities we most affected by tariffs in Canada. And none of the big cities in BC are on that map. It's like we have none of the kind of hotspots for tariffs. Know, if you look at Vancouver, Kelowna, Victoria, Bavitsford, Chile and the NIMO are sort of the big cities in BC, and none of them were considered to be like hotspots for tariff impacts.
So we are going to be affected, but it's less So there's a lot of other places in Canada. Not to say that there aren't, like, smaller communities for sure in BC that are really gonna feel the impact.

Taylor Atkinson: In some of your models then, like, obviously, we're anticipating inflation's gonna be on the higher side a little bit. It gonna be more specific to products and goods where that inflation's affected? I'm just thinking like lumber. Sure. We're gonna probably export much less lumber.
But right now, we're gonna have a bit more of a surplus. Would that lumber cost go down? Like, would that not help housing supply or, I guess, building cost? But then, you know, my mind's just circling. I'm like, okay.
But if, like, you know, provincially or federally, we're seeing inflation everywhere, then they're gonna have to recover that cost and pay for the, you know, wage subsidy to go up? Like, are we gonna see a decrease on any products because there's more of a surplus, like oil and gas, lumber, anything? Or is it just, like, once we start hitting that inflation treadmill, like, everyone's gonna jump onboard.

Brendon Ogmundson: Yeah. On the lumber side, I would hope that we have other export markets and we can tap as well. We might not have, like, a huge, you know, domestic kind of surplus. They'll maybe help to offset some of the other increases in building costs. Like, I don't look at, like, pro formas for buildings.
I'm not sure, like, how much the content of sand a part of the building is imported, but how much might be subject to a tariff. But I'm guessing that a fair amount of what we use is leased on the equipment side too is probably imported. And those costs are gonna rise. So who knows where it shakes out? It's a really good question.
It depends on how much of a market there would be, I guess. What it just means is that production would be a lot lower. Maybe you'd have a temporary surplus, but eventually they would just shut down a lot of production in the softwood lumber, you know, example, they would just would cancel lots of shifts or shut down some mills. They're not gonna build a surplus of goods. Once that inventories worked off, they just would not be producing as much.

Taylor Atkinson: Yeah. That's why the scenarios are projecting like GDP coming down in addition to inflation going up. It's driving that wedge from your side.

Brendon Ogmundson: And the inflation part is really like, obviously, you're making something twenty five percent more expensive that's gonna drive prices higher and A lot of research shows that domestic producers also raise their prices to match the higher imported price. Makes sense. They have pulled the extra margin. So you do get these sort of inflationary impacts at a time when the rest of the economies really, really suffering.

Matt Glen: And what about something like adjusting the foreign buyers ban to, like, just

Brendon Ogmundson: US only banning Americans?

Taylor Atkinson: Yeah.

Brendon Ogmundson: Yeah. I mean, I think there's a good argument for lifting the foreign buyer ban in general.

Matt Glen: Yeah. And then the

Brendon Ogmundson: amount of investment we need in housing over the next ten years. So the US is a pretty deep capital markets. So I don't know if I'd wanna completely shut out one of the largest financial markets in the world, but I know they'll look at other things they can target other than just using matching tariffs maybe they'll be able to put an export tariff on Canadian oil, which would be interesting. Obviously, the US has already kind of communicated. That's a weak point given that oil only is a ten percent tariff.
Because they really don't want drivers in the Midwest and around the in those states to see a giant spike in their price of the pump. That might be a pain point if the premier Alberta doesn't get in the way that we could cause a lifestyle pain. It's interesting, though, too, like, in twenty eighteen, when they put tariffs on softwood lumber and steel and aluminum and appliances, it only lasted about a year before American businesses were getting really upset about the rise in their input costs. If you look at surveys that they're all reserved does, they're already hearing from small businesses about uncertainty and now tariffs are going to affect their business and they've just gone over an inflationary episode, and now we're going to have prices rising again. I think they can lose political support really, really fast.
And if you get a really big market reaction as well, it could be convincing to an administration that pays a lot of attention to financial markets as sort of a gauge of how well they're doing. So could be a really temporary thing, but it's a little disheartening in, like, how much enthusiasm there is, I guess, at the top for an idea that's so kinda stupid on its face.

Taylor Atkinson: I've heard the argument and I kind of agree with it. It's like, this really takes away from the last year and a half of our own, like, internal bad policy, tariffs, capital gains, inclusion, spec tax, anti flipping tax. Like, all these other things that we're just crushing our own economy with. Now it's kind of like you know, short term memory, like, oh, like, Canada's been fine. We treat ourselves really well.
The states is crushing us. It's like, well, we wouldn't also be in such a bad predicament if we didn't just have, like, a horrendous four years of our own economy. What is your prediction, like, come in a week or a month whenever they actually come out with this? Like, do you feel that, like, seventy five percent? Are we leaning towards tariffs being set up on both sides?

Brendon Ogmundson: Beams that way. It's really hard to know what they want. Sometimes they'll talk about how unfair the trade deficit is with Canada even though it's very, very small and entirely driven by their own purchases of oil. They'll talk about how much fentanyl is pouring across the northern border. And then if you look at their own data, they see something like forty three pounds of fentanyl at the Canadian US border.
That's clearly not the issue either. I don't know what would convince them because there are arguments for us, so or so transparently lame. And, like, this data showing, you know, those things are an issue. So what the actual goal is is really, really hard to say unless it's, you know, annexing Canada is the fifty first state, which is so bad shit. But then they like, I don't even understand how it gets talked about.
So I don't know. Aren't you having any real conviction in the audio stuff? Because it doesn't make any sense. Right? Yeah.

Taylor Atkinson: If it does go, I'm just trying to summarize in my own head. So if it does go, tariffs on both sides, Canada and the US, we would likely see GDP come down a little bit, inflation go up a little bit, sustained for a couple years. And likely Bank of Canada overnight rate would react by, like, you know, a percent, like, a hundred basis points a percent lower first word duration.

Brendon Ogmundson: If inflation is transitory, I feel like it's really persistent. If it's two and a half percent, then they start lowering rates, then inflation starts creeping a little bit higher maybe to above three percent and there kind of gets into expectations. We don't want a repeat of what we went through during the pandemic where we had what should have been transitory inflation and the Bank of Canada treating this transitory at first, and they got too far behind the curve. When it turned out, it wasn't that transitory, and they had to be very aggressive. And they really wanna avoid repeating that mistake.
And they might be a little more cautious this time around. The interesting thing will be how governments react on the fiscal policy side. Also, I think probably more cautious considering how inflationary a lot of the emergency measures and spending was during the pandemic. Can't see them responding with that same kind of firepower. So there's a lot of making more caution on the part of policy makers.
They know how much people hate inflation. Seemingly hate inflation more than they hate unemployment. And so I think we'll be a little more cautious in treating the economy this time around.

Matt Glen: There's been a lot of talk about our dollar getting lower and lower. Like, when I think about that, it seems like kind of a positive thing in those two ways to me, but I don't know, like, what are your thoughts on that?

Brendon Ogmundson: Positive in in some ways. I mean, it certainly helps our exporters be more competitive. Yep. It also kinda shields them from having to do things to be more competitive, like increase their productivity. If you're only competing on low cost and you don't have to compete by just being better at your business by investing in machinery and equipment and productivity and all those kinds of things and innovation, that's not great.
And also it's inflationary. So the more the looting depreciates, that means all of their imported goods get more expensive and that gets passed through. So you sure they don't want currency that's too low. So the tariffs make this worse. This is the other part of it too that doesn't make any sense.
When you put a tariff on another country, the country imposed on the tariff tends to see their currency increase, which doesn't help your trade balance because now your exports are more expensive and imports are cheaper, so it actually makes your trade deficit worse. Like, simple macro stuff. I guess they're still thinking about it.

Taylor Atkinson: The bond yields have been like a frigging roller coaster for the last well, quite a while now. Do we predict bond yields going up a little bit with tariffs? And then so we're gonna kinda see, like, an inverse rate. Fixed rates are probably gonna come up a bit. Variable's gonna come down or, like, what's happening?
Do you have any predictions on the bond yield?

Brendon Ogmundson: Yeah. It's been interesting. The period between the election and when tariffs were, like, announced at the end of since the end of January. The five year bond yield hit three point three on two separate occasions and also hit, like, two seven five. So it was like it was all over the place.
And lenders were like, just trying to ride out that volatility. If you didn't see it five year picks rates move very much because they were slight. They're not gonna be constantly adjusting their lending rates up and down. When the tariff was announced that Monday was through the markets opened. At the five year bond, you'll take, like, two and a half.
Anyway, really low. And even, like, guys, it's more like, it looks like it's under two seven briefly based on tariffs. So I think five hundred bond yields will start pricing in and and probably already are pricing in a much more aggressive pace of Canada. Getting them any bond yield is essentially just the sum of where do you expect the Bank of Canada to be the next five years? And then how much risk are you gonna build in?
Right? So usually the term premium between the five year bond yield in the Bank of Canada. So how much higher the five year bond yield is the Bank of Canada overnight rate is like fifty basis points. So at two seven, you could assume if there's not much of a risk premium that the markets are pricing in a bank of Canada at about two and a quarter. So the lower the five year bond yield gets, the more they're expecting the banks gonna have to really really start cutting rates.
What I'd be worried about, I guess, is at least in the short term, even if five year bond yields are falling, that they're falling because of pricing in a recession, the markets are pricing in a recession, and then that risk prem gets built into the mortgage spread. So our normal mortgage spreads are a hundred and sixty basis points, but we've seen in periods of crises around recessions that sometimes that spread can blow out to, like, two hundred basis points or more. So you're gonna be having a situation where five year bond yields are falling, but fiber fixed mortgage rates are rising because there's a lot more risk, obviously, in the economy, you know, there's a lot more risk in lending out to a population that might be losing its jobs. You have losing jobs the next few months. So That'd be my worry, I guess, is like we'd have a temporary increase in five or six rates.
Even as the Bank of Canada is cutting, which we've seen in the past. And then on variable rate, obviously, variable rates would be falling along with Bank of Canada.

Taylor Atkinson: Yeah. You know what else is interesting there is we've seen a lot of lenders in the last month or so give, like, very competitive rates on a one and a two year fixed. Which historically we've never really had. But Agara leads you to think, like, they would rather have short term money out because, like, they don't know what's gonna happen either in two years, you know. They wanna recycle that instead of locking somebody in.

Brendon Ogmundson: Yeah. Exactly. Yeah. And I guess, like, right now, five year fix for uninsured is still, like, around four, six, four, seven from most, like, big lenders. So Yeah.
You know, we seem like pretty cautious about lowering rates much more.

Taylor Atkinson: Yeah. Well and that's the thing we're beating that on variable now. Which is, like, only just come in, you know, which is nice to have the option. But we thought a couple years ago, like, yeah, do a three year fix because in three years, we're gonna have a great opportunity to have a better decision. Now it's like, cool.

Brendon Ogmundson: Yeah. We do. And now, like, you think, like, well, if we're gonna be in a recession, maybe the obvious recommendation to clients is take a variable because the mechanics can be lower rates. But then there's, like, a twenty five percent, maybe higher probability that inflation's gonna be higher, the base of candidate can count rates. Maybe that's a raise rates.
And, like, that's maybe enough to scare anyone off of a variable.

Matt Glen: Yeah. Crazy times, man. Sweet pees. Flip it on. Yeah.

Taylor Atkinson: Yeah. No. We appreciate you coming on the show. I mean, that's a lot of information. And, yeah, thank you for explaining it to us.
Hopefully, we'll have an answer in a couple weeks. And then, you know

Brendon Ogmundson: It's hard not to talk about without, like, tearing your hair. Does it sound nonclinical? But I've been trying I've been trying to walk the line in presentations, you know, not being too fluid like Yeah.

Taylor Atkinson: You just have a disclaimer at the bottom. Like, none of this will be valid by tomorrow.

Brendon Ogmundson: One of these days, I'm just gonna, you know,

Matt Glen: wanna full on

Brendon Ogmundson: Right. Right. That upon yeah. I'm going. It says loss is mine.
Yeah. I probably know I've run one too many years. My brain will just break, and I'm just gonna gonna lose my mind on stage. Yeah.

Taylor Atkinson: Well, let us know when you're ready for that. We'd love to be there for you.

Matt Glen: Yeah. The platform's all yours for that.

Taylor Atkinson: Okay. Well yeah. Thanks a lot. Thanks for coming on, man. We appreciate it.
We'll talk to you soon. And, yeah, we'll check out your LinkedIn post because I'm sure that's gonna be updated

Brendon Ogmundson: soon getting crazier and crazier and crazier and crazier than you'll know. Yeah. Wow.

Matt Glen: Yeah. You need to start wearing a white lab coat. That would be cool.

Brendon Ogmundson: Yeah. Okay. Have a great day. Thank you.